Commercial Leasing – the impact of COVID 19
The impacts of the COVID 19 epidemic have been both widespread and severe for many people and businesses.
One area that has been severely impacted is that of leases – both from the perspective of landlords and of tenants.
In this article, we look at the impacts for commercial leasing sector as opposed to residential leasing. Commercial leasing includes the leasing of Retail premises, Office premises and Industrial premises.
As the restrictions imposed in response to COVID 19 took hold, many businesses suffered a significant reduction in turnover and were forced to lay off staff. The Government response was initially to establish programs such as Jobkeeper, to support businesses to keep staff employed.
On 24 April 2020, the NSW Government introduced the Retail and Other Commercial Leases (COVID-19) Regulation (2020-175).
The aim of this Regulation is to compel compliance with the National Cabinet Mandatory Code of Conduct—SME Commercial Leasing Principles During COVID-19 which was adopted on 7 April 2020.
The operation of this Regulation has been extended until 31 December 2020. Its effect can be summarised in simple terms as follows:
- The Regulation defines “Impacted Lessee” as a lessee that has qualified for Jobkeeper and has a turnover of under $50,000,000.00.
- A lessor cannot take certain action in relation to an “Impacted Lessee” under an impacted lease is prevented from taking prescribed action which includes termination of the lease, eviction, taking possession of premises, taking action for damages or claiming interest or seeking the forfeiture of bond monies.
- A lessor cannot increase rents during the period of operation of the Regulation.
- The parties are required to negotiate reductions in rent in good faith having regard to the National Cabinet Mandatory Code of Conduct. This will be expanded upon below.
- Before any prescribed action is taken, the parties must mediate the dispute through the Office of the Small Business Commissioner and a Certificate must be obtained that such mediation has taken place.
- Should the lessor then take action for recovery of possession of the premises or termination of the lease or seek to enforce other rights under the lease, Court or Tribunal must take into account the National Cabinet Mandatory Code of Conduct in adjudicating the matter.
In relation to non-retail leases the above changes are brought into effect through the inclusion of Schedule 5 to the Conveyancing (General) Regulation 2018.
The National Cabinet Mandatory Code of Conduct uses the term “landlord” and the term “tenant” and sets out a number of requirements, including the following:
- The landlord must not terminate during the COVID-19 pandemic period and a subsequent recovery period.
- The tenant must remain committed to the lease.
- Reductions in rent must be offered in proportion to the loss of trade by the tenant.
- The reductions must consist of at least 50% in waiver of rent – meaning that this is not recoverable from the tenant.
- The reductions can in part consist of a deferral of rent and such deferral must be repayable over a minimum of 24 months or the balance of the lease if longer. No interest is payable in respect of the deferred amount.
- Any reductions in expenses such as Land tax, Rates or Insurance offered during the COVID-19 period are to be passed onto tenants.
- Any deferral of loan repayments by banks received by landlords must be shared with tenants.
As can be seen from the above, both lessors and lessees need to take the Regulation and the National Cabinet Mandatory Code of Conduct into account before any action is taken in relation to a lease dispute.
We at Lexington Law have the knowledge and the experience to guide you whether you are a lessor or a lessee to ensure that any action you take is lawful or that you are receiving the full benefit of the changes introduced during the COVID-19 pandemic.
If you have any questions please do not hesitate to contact a member of our team.